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Gas Natural SDG SA (

GASNY

)

Q4 2010 Earnings Call

February 22, 2011 11:00 am ET

Executives

Luis Calvo – Head of Investor Relations

Rafael Villaseca Marco – Chief Executive Officer

Carlos J. Álvarez Fernández – Chief Financial Officer

Antonio Basolas Tena – Managing Director of Strategy and Development

Analyst

s

Antonio Cruz – Banesto Bolsa S.A.

Pablo Cuadrado – Bank of America Merrill Lynch

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Fernando Garcia – Bank Espirito Santo

Manuel Palomo – Citigroup

Alejandro Vigil – Cygnus Asset Management

Alberto Gandolfi – UBS

Bruno Silva – BPI

Javier Garrido – JP Morgan

Raimundo Fernandez – Cuesta Nomura

Javier Suarez – UniCredit

Jorge Alonso – Societe Generale

Jose Antonio Lopez – HSBC

Virginia Sanz De Madrid – Deutsche Bank

Anna Maria Scaglia – Credit Suisse

Presentation

Luis Calvo

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Good morning, welcome to the presentation of the Forth Quarter 2010 Results of Gas Natural Fenosa presented by Mr. Rafael Villaseca, our CEO, together with the CFO, Carlos Álvarez and the Director of Strategy and Development, Mr. Basolas.

After this presentation, we will have a Q&A session in the room and over the telephone or the internet by sending in questions that you can find or through our web page.

I will pass the floor to our CEO, Mr. Villaseca. Good morning.

Rafael Villaseca Marco

Good morning those of you who are here physically in the room and those that are listening to us on the Internet or the phone. It’s a pleasure to explain the results of fourth quarter of 2010. The five points on the agenda are, first of all the magnitude, the dimensions of the year, main issues, a summary of consolidated results and then we will analyze the pro forma analysis of our operations. And then we will reach after giving you information about the most important events. We will give you conclusions and then accept questions.

So if we start, allow me to tell you how satisfied we are, in spite of the fact that we’ve had a year that was, especially in Spain had difficult times and in we’ve been, times have been difficult and bearing in mind that the company has made to provision above, provisioned for risk. Our results have grown by 14%, our EBITDA 0.5 in terms of profits after taxes. This is relevant because in spite of the results of the arbitration with Sonatrach, not definite, the company have continued to develop to actions or due to things.

The first of which is to continue the ordinary recurrent provisioning operation which we had been doing since 2007 and also included another provisioning measure which together with other measures has given us €305 million in terms of net results. So we’ve got the provisioning that we had been doing and another provisioning operation which together with a positive amounts on the P&L account have resulted in €305 million as an impact.

We’re going to be conservative in terms of in the, face of uncertainty. Our investments have gone down by 17% and the net debt has also gone down by about 16%, 17%. We’re going to look at these in further detail later.

Let’s go into the main issues. First of all, we’re going to talk about the update on Sonatrach gas contract arbitration process and we will talk about the energy business. Then we will talk about the mix of activities and we will look at regulated, of course our regulated activities. And we will talk about strengthening of the balance sheet and our financial structure and then we will talk about shareholder remuneration.

So as you see and except for the novelty of the Algerian issue, we have continued along the lines that we announced in the, continues to be, include our priorities as they are.

Let's update the situation with Sonatrach. You know that this process is affecting two contracts for 9 bcm’s about one third of our supply portfolio and it has to do with, while the arbitration “International Chamber of Commerce” ruled in August that is, gave a ruling that is to subject to certain issues Gas Natural understood and continues to understand that this is not right. It's not fair and put in a claim against this to defend its interests within the possibilities of the contract and the law.

And I have to say in that respect as we know that we presented, we appealed to the Swiss Federal Court, a stay of execution was granted and we also opened up the price revision for both contracts. We asked for price review or revision for both contracts, which would have retroactive effects and we have done something obvious. We've defended based on what was contemplated in the contract and in the law what we have been able to do.

And another thing and we hope that this will be successful, we've initiated negotiations with Sonatrach in order to reach general agreement that puts an end these discrepancies. We hope that that happens in the near future and we can solve this matter, but these legal proceedings continue and those so as I said negotiations that we hope will put an end to this. We have to say that the effects of the ruling are still uncertain or definite both because of the negotiations that we have now and the legal actions that we’ve started.

As regard to the impact on our accounts, on our P&L account, I have to say that the coverage of those contingencies, potential contingencies while those contingencies have been covered in three different ways it should be fully incorporated into our accounts for last year, the three procedures. The first one is the pass through. Some contracts with some customers specify clearly Sagane I and II contracts will be carried and included and covered automatically.

We also have provisions that we've been putting aside since 2007. We've been provisioning reasonably in order to have the amount that we might need to face the contingencies that arise. We’ve continued to do that and we will until the end of the process.

And as I said at the beginning we got a complimentary, an additional provision for the end of this year 2010 up to €305 million. So we got the ordinary provisions and then the extraordinary provision to cover the Sagane Sonatrach arbitration process, which together with other positive provisioning has allowed us to have €305 million ready.

But in spite of that we have no doubt that on the one hand if we look at the legal situation of all the procedures that are ongoing and if we also look at the negotiations with Sonatrach, we believe that we have adequately covered all the risks. And therefore we have calculated the impact of all this and we feel reasonably protected against any final result which might have an impact on us.

These estimation and calculations and provisions are part of our accounts and they have been audited by PricewaterhouseCooper without any adverse results and we therefore come through a very difficult year for the economy in general and at the same time we’ve also been able to cover the risks associated with this operation which are still pending legal results and negotiations that we’re having with Sonatrach in order to solve these problems that we’ve had for so many years with Sonatrach.

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